How to Get Creative in a Real Estate Transaction

By Brendon DeSimone

Published December 20, 2012

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Real estate buyers and sellers often come close to making a deal — but something stands in their way. Multiple offers and counters fly back and forth over the course of several weeks. Maybe the buyer and seller are just a few thousand dollars apart on price. There could be one sticking point that neither of them is able to get past.

When this happens, it’s time to get creative. Here are some ways buyers and sellers can close a stalled real estate deal.

The seller offers to pay HOA dues

A buyer considering the purchase of a condo or a home where there are monthly assessments (or dues) may have trouble swallowing those costs in addition to the monthly mortgage payment. But when buyer and seller are off by only a few thousand dollars, reducing the home’s price won’t do much for the buyer in the long run. For example, a $15,000 price reduction amortized over 30 years would end up saving the buyer just a few dollars per month.

Instead, a smart agent will suggest the seller pays the homeowners association for a year’s worth of dues. This could save the buyer, say, $500 per month. Although that’s a lot less than a $15,000 price cut, it would go a long way toward helping the buyer afford the total monthly expenses.

The seller pays the property taxes

Nobody enjoys paying property taxes, especially when they’re due in April, the same time as state and federal income taxes. If a buyer and seller are off on price, the seller can offer to pre-pay the property taxes, thus removing the burden from the buyer at a time when every penny really counts.

The buyer offers the seller a rent-back

Does the seller need more time in the home, but all parties want to move the deal along instead of doing a three-month escrow? Frequently, the solution is that the buyer allows the seller to stay in the home after the close of escrow for a pre-determined amount of time. In return, the seller pays the buyer a pre-determined among for “rent.” This generally is the buyer’s monthly mortgage prorated for the amount of time the seller stays behind.

You might even consider offering the seller a “free” rent-back. Chances are, you won’t be moving the same day you close. And if you’re renting and your closing date is the middle of the month, you’ll probably have to pay both rent and mortgage for a short period of time. What could amount to no extra expense to you could end up helping the seller in a significant way. Not being rushed out of the home and staying awhile longer for free is bound to appeal to a stubborn seller.

The seller buys down the buyer’s interest rate

Often, a buyer has consulted with his mortgage lender and has been given a ballpark quote for the home he wants to buy, such as a 3.5% rate for a 30-year-fixed mortgage. The buyer does the math and may wonder if he can afford the monthly payment after all or feels compelled to bring it down somehow.

Sometimes, for the cost of 1% of the loan amount, the buyer can get a better interest rate, maybe 3.2%, and lock it in for 30 years. This may be a smart idea if rates are rising and the buyer prefers to pay an out-of-pocket cost upfront as opposed to over time. When faced with a seller who won’t budge on price or a buyer who has hit his monthly cost limit, the seller may offer to buy down the mortgage rate. Again, the cost to the seller will likely be less than a price reduction.

Similar to paying the HOA dues, buying down the interest rate to lower the monthly payment means a lot more than the total price of the home. A few thousand dollars toward buying down the buyer’s rate can save the seller money in negotiations and the buyer on their monthly payment.

Get creative

Agents need to be alert to the possibility that a deal between willing and able buyers and sellers can get derailed in the eleventh hour. When an impasse occurs, the agent should get to the bottom of what’s really going on. Most importantly, everyone involved — agents, buyer, and seller — has no doubt invested a lot of time and energy into the deal already. When it stalls, it’s time to put heads together and come up with a creative compromise.

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